To ask the Secretary of State for Education, what assessment her Department has made of the effect on the public finances of lost interest receivable arising from changes to the (a) lower threshold for variable interest rates post-2012 student loans and (b) upper threshold for variable interest rates; and if she will make a statement.
23 October 2017
For Plan 2 student loans we have raised both the repayment threshold and raised the thresholds at which variable interest rates apply to borrowers in the repayment phase. Following the threshold change, interest will be charged at RPI for those earning below £25,000 (compared to £21,000 before) and at RPI+3% for those earning above £45,000 (compared to £41,000 before), with interest applied on a sliding scale for those earning between those two thresholds.
The effect of the changes to interest rate thresholds will be to reduce the average interest rate applied to graduates’ student loan borrowing, and in turn reduce average repayments across the 30 year life of the loan for many loan borrowers.
The impact of this can be seen in changes to the Resource Accounting and Budgeting (RAB) charge, which measures the proportion of loan outlay that we expect not to be repaid when future repayments are valued in present terms.
The RAB charge for higher education student loans was estimated to be around 30%. Following all of the changes to the student finance system outlined in the Written Ministerial Statement of 9 October 2017, which include the increase to the lower and upper interest rate thresholds and the increase to the repayment threshold, we estimate this will increase to 40-45%.
The cost of the system is a conscious investment in young people. It is the policy subsidy required to make higher education widely available, achieving the Government’s objectives of increasing the skills in the economy and ensuring access to university for all with the potential to benefit.